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Eric Bloch Column

Inflation: The grim fairy tale

By Eric Bloch

VERY belatedly, as has become the norm, the Central Statistical Office (CSO) finally released August 2007 inflation data last week.

The del

ay was undoubtedly not occasioned by the CSO, but by the attendant requirement that the Ministry of Finance authorise the data’s release before any such publication is made.

It was that requirement which resulted in the April and May 2007 inflation data being withheld from the populace for over two months, and it can therefore be argued that the private sector should be grateful to government that the delays are now somewhat less!

Nevertheless, the delays are unjustifiable, are highly prejudicial to commerce, industry and others, and further destroy government credibility.

But of greater concern must be that very little reliance can be placed on the inflation data in attempting to assess, realistically, price movements in Zimbabwe.

The Consumer Price Index (CPI), on which the inflation rates are calculated, has no foundation in fact, and is not only naught but a fairy tale, but that fairy tale can best be described as grim.

That the CPI and the inflation data drawn therefrom are grim is because they very grossly understate realities.

According to CSO, year-on-year inflation to August, 2007 was 6 592,8%, and month-on-month inflation for August was 11,8%.

It is impossible to believe that there is even one consumer in the whole of Zimbabwe as would give an iota of credence to those figures, for they know full well that the inroads into their near empty pursues, and into their fast declining, very minimal resources, are at a horrendous pace and to a massively greater extent than implied by the CSO’s inflation rates.

This is due to a number of facts. First and foremost is that, unavoidably necessarily, CSO relies upon the so-called “controlled” prices, and the movement thereof, to determine CPI and the underlying inflation rates.

However, ever since government, with its demonic, foolhardy, counter-productive and destructive price controls of June 26, 2007, drove almost all goods off the shelves of the shops throughout Zimbabwe, virtually no goods are available at the controlled prices.

To a major extent, the empty shelves are reflective of reduced production by manufacturers, who could not afford to produce goods at costs higher than the prices at which they were permitted to sell.

However, the scarcities have been exacerbated by the very considerable extent to which informal sector traders commandeer almost all of the limited quantities of essential commodities as do reach the shops, in order thereafter to sell them in the black market, at very highly inflated prices, no controls being enforced upon them.

The black market has also been fuelled by Zimbabwean commodities which manufacturers export to neighbouring territories, thereby enhancing their prospects of survival, by realising prices which exceed their costs.

Cross-border traders, flocking to Francistown, Mussina and Livingstone, as well as elsewhere, purchase those commodities, smuggle them back into Zimbabwe, and then sell them to consumers so desperate to access their needs that they will, albeit reluctantly, pay whatsoever price is demanded of them.

Thus, for example, in August the official price of a litre of petrol was $60 000, but save for a few privileged individuals and providers of essential services, who would access petroleum from Noczim, the motorists at large could only source fuel from unofficial markets, with prices in August ranging from $240 000 to $285 000 per litre and now exceeding $400 000 per litre!

Thus, the real cost of fuel was at least four times that which was used to determine the CPI. The same holds good for almost all essentials. Bread, maize-meal, flour, sugar, soap, eggs and almost all else could not be obtained from any hypermarket, supermarket, or other retailer.

Instead, consumers either had to seek fulfillment of their needs by traveling crossborder to purchase them, or to purchase their requirements from black market sources at uncontrolled prices.

But those uncontrolled prices are not used by CSO to determine CPI, and therefore the inflation data calculated therefrom bears no relation to reality.

According to the CSO data, inflation in transport costs was only 10,8% in August, with the increase in fuels and lubricants being 7,1%.

Any motorists, haulage operators, or other providers of transport would view these rates with total disbelief.

Food and non-alcoholic beverage inflation was allegedly, according to CSO, 16,5%, with meat inflation being only 6,3%, and milk, cheese and eggs having increased in prices by 7,9%.

But anyone who would have been fortunate enough to find any meat, dairy products or eggs knows that the prices they paid were far above the controlled prices, and as against costs prior to the price controls, were 200 to 300% greater.

The CSO inflation rates are also distorted by its consumer “spending basket” no longer being realistically reflective of average consumer spending.

The CSO’s consumer spending basket ascribes 31,9% of total spending to food and non-alcoholic beverages, 16,2% to housing, water, electricity, gas and other fuels, 15,1% to furniture, household equipment and maintenance, 9,8% to transport, and the remaining 27% of spending is on clothing and footwear, health, alcoholic beverages and tobacco, communications, recreation and culture, education, and sundry other items.

However, the average consumer will claim not to have a sufficiency of funding for food, accommodation, utilities, education, health, and transport, let alone to spend on anything else.

Therefore, the percentages constituting the spending basket are not factual and realistic, and therefore the inflation rates calculated there from, the percentages constituting the spending basket are not factual and realistic, and therefore the inflation rates calculated by applying that basket to CPI are not factually representative.

The harsh fact is that the majority of Zimbabweans will remain reliant upon the black, and other unofficial, markets until such time as scarcities cease to exist, and that will only be when government allows market economic fundamentals, instead of regimentation and control, to drive the economy.

* By way of a postscript, some have suggested that an absence of a response from me to Muckraker’s attack on me in the Independent of September 14, 2007 implies my concurrence therewith.

The reality is that as Muckraker’s vitriolic criticism is founded upon a fabricated quotation which in no manner reflected that which I really said, and is based upon a gross misrepresentation of my expressed views, I have accorded his diatribe against me the contempt it deserves.

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